Remember that under Quantitative Easing I and II, the Fed printed roughly $2 trillion in new money. And yet still we’ve experienced the weakest US jobs recovery in a half-century. Will printing even more money under QE3 really generate jobs in the US and what do mortgage backed securities have to do with jobs? We're asking these questions as we believe there is at best a very weak linkage between Federal Reserve printing of money and actual jobs creation. Moreover, the structural issues the US employment market is facing strongly suggest the true motivation of the Fed in unleashing unprecedented and unlimited QE3 is asset reflation, not jobs creation, despite this being quite the noble perceptual focal point. The key point is asset reflation. This is exactly where theoretical success, or otherwise, of QE3 will be measured by the Fed itself.

The Fed’s QE I saw its greatest success in reflating a broad spectrum of financial asset prices. We saw very much the same outcome, although to a lesser degree, with QE II. And so QE III will all of a sudden be effective in creating domestic jobs? Again, a noble perceptual focal point, but one not supported at all by the data or character of the current economic cycle itself. The new QE III is once again all about asset reflation, as have been the prior two Fed balance sheet expansion stimulus programs. Make absolutely no mistake about it and act accordingly.